B of A High Yield Broad Market index nosedives 3.56% on week; 2008 loss grows to 8.48%

By Paul Deckelman

New York, Sept. 29 - The Banc of America Securities High Yield index plunged by 3.56% in the week ended Friday - its second major loss in as many weeks, following on the heels of the 2.61% slide seen in the previous week, ended Sept. 19.

The latest week's swoon caused the index's year-to-date loss to gap out to 8.48% - its deepest deficit so far this year - from 5.11% the week before, the previous widest 2008 loss. The index's peak level for the year was a 1.86% cumulative gain seen over the two weeks ended May 16 and May 23.

The index showed losses the first three weeks of the year and continued in that negative trend most weeks through mid-March, but then nosed upward with seven straight weeks of gains through early May. After that, it turned choppy and inconsistent for several weeks, alternating gains, losses, and one week that saw neither a gain nor a loss, but a flat 0.00% reading. But more recently, the index has shown 10 losses in the past 16 weeks, including five straight at one point, starting in mid-June.

With 39 weeks now in the books, there have been 18 weekly gains, 20 losses and the one unchanged week.

Spread balloons out

B of A analysts said the index's average spread over Treasuries bulged out to 1,031 basis points from 958 bps the week before, the previous wide point for the year.

The spread's tightest level of the year was 651 bps in the week ended June 13, although even then, this year's spreads have been notably wider than the 613 bps seen at the end of 2007.

The index's yield to worst also gapped out sharply to a new 2008 high of 13.44%, versus 12.61% the prior week, the previous high for the year. The 2008 low was 9.98% in the May 16 week.

The index tracked 1,531 issues of $100 million or more, down from 1,547 issues the week before, while its overall market value slid to $530 billion, a new low point for the year, from $554.7 billion the week before - the previous low 2008 total.

The index's total value thus moves still further below the 2007 year-end total of $595.3 billion, to say nothing of its peak level for this year at $614.9 billion in the May 23 week. B of A sees the index as a reliable proxy for the high-yield universe, which by some estimates is valued around $1 trillion.

By the ratings categories for the three major baskets of credits into which B of A divides the index (excluding the relatively small group of unrated issues), with all three groups finishing in the red, the CCC rated credits had the worst loss, surrendering 4.76%, followed by the single-B rated bonds, which were down an even 4%, while the BB rated paper did better, relatively speaking, with just a 2.38% loss.

It was the second consecutive week in which the latter group relatively outperformed the other two; in the week ended Sept. 19, the CCCs and the single-Bs each lost 3.11%, while the BBs showed just a 1.70% loss.

Clean sweep for negative sectors

In the latest week, all 38 of the active industry sectors into which B of A divides its high-yield universe finished in negative territory, with none in positive territory, the second consecutive week of overwhelming negative dominance. In the previous week, 37 sectors were in the red, while just one - health care services - was in the black.

At the beginning of the year, most weeks saw negative sectors dominate, but the breakdown essentially evened out after that. To date, sectors have shown more gains in 19 weeks, more losses in 19, and were evenly split one week.

Banks week's worst sector

Among specific sectors, banks - reflecting the continued turmoil in the financial industry, notably the failure of Washington Mutual Inc. - collapsed to the astonishing extent of minus 23.54%.

It was the sixth straight week in which the banking group has been among the Bottom Five worst-performing sectors, including the previous week, when the banks lost 7.66%. It was also the third week in the last four and fourth week in the last six in which the banks have been the index's biggest loser, and the second week in the last three in which the sector's weekly loss has exceeded 20%, including the week ended Sept. 12, when the banks plummeted by 22.69%.

The banks took over as the cellar-dweller from diversified financials, which had that unwanted honor in the Sept. 19 week when it fell 8.07%.

Diversified financials, however, remained among the Bottom Five in the latest week with a 7.34% loss. The last two weeks represented a sharp reversal from the week ended Sept. 12, when the group had been among the Top Five best finishers with a respectable 2.44% gain.

Automobiles (down 8.10%), real estate (down an even 7%) and advertising-dependent media (down 5.16%) rounded out the latest week's Bottom Five list.

It was the third straight week there for real estate, which had landed there the previous week with a 4.98% loss and in the Sept. 12 week, when it lost 6.45%, and was the second straight week there for autos, which had been among the worst losers the prior week with a 5.96% loss, although the autos had been the single-best finisher in the index the week before that, with a 5.04% gain.

Textile and apparel tops for week

On the upside, such as it was, with all 38 sectors finishing in the red for the week, as noted, the Top Five list consisted solely of sectors having smaller losses than their peers. Textile and apparel had the smallest loss, 0.64%, taking the top spot away from the previous week's champion, health care services, the only sector finishing in the black that week, as noted, with a 0.24% gain.

Consumer non-cyclical/other and transportation (both down 0.77%), entertainment (down 0.87%) and consumer products (down 0.94%) rounded out the latest week's Top Five. Entertainment had also been there the previous week with a relatively modest 0.56% loss.

Banks year's worst sector

Besides being clearly the week's worst finisher, banking remained definitively at the bottom of the pile on a year-to-date basis as well, as its deficit worsened to 57.36% from 44.23% previously.

Bottom Five finisher diversified financials remained second-worst in the index year to date, its loss widening to 24.75% from 18.79%.

Fellow Bottom Fiver advertising-dependent media continued to languish at third-worst on the year, as its red-ink increased to 21.56% from 17.29%

Another Bottom Fiver, real estate, fell one position in the 2008 rankings, to fourth-worst from just fifth-worst previously, its cumulative loss gapping out to 19.85% from 13.82%. It displaced the previous fourth-worst sector, gaming, lodging and leisure, whose loss for the year rose to 18.72% from 14.60% previously - bad, but not quite bad enough to stay among the worst losers.

Its place there was taken by yet another Bottom Fiver, autos, not among the worst laggards previously, which skidded to fifth-worst, as its year-to-date loss opened up to 19.62% from 12.53%.

Health care equipment/services tops for year

On the upside, health care equipment and services moved up one position in the rankings to take over as the year-to-date leader, its return declining relatively modestly to 4.48% from 6.11% previously.

It switched places with long-time first-place holder wireless telecommunications, whose 2008 return dropped to 2.99% from 6.23% the week before.

Top Five finisher entertainment moved up two notches, to third-best from fifth, as its cumulative return narrowed to 2.83% from 3.73%.

Insurance brokers remained in fourth place, with the group's 2008 return cut to 2.21% from 4.24%.

Health care facilities, which formerly held the number-three spot, dropped two slots, down to just fifth-best, with a return of 2.18%, down from 4.89% the week before.

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